1. BARNES & NOBLE
97
ANNUAL REPORT

2. BARNES & NOBLE 1997
FINANCIAL HIGHLIGHTS
YEAR-END STOCK PRICE RETURN ON BEGINNING EQUITY
$31.81 14.2%(2)
12.8%
9.6%(1)
$15.56
$13.81
’95* ’96* ’97 ’96 ’97
’95
* Adjusted for September ’97 Stock Split. (1) Before restructuring and asset impairment charge.
(2) Before extraordinary charge due to the early
extinguishment of debt, net of taxes.
DILUTED EARNINGS PER COMMON SHARE
FREE CASH FLOW
Dollars in Millions
$47.3 $0.93(2)
$0 $0.75
$0.53(1)
($52.3)
($211.8)
’95 ’96 ’97
’96 ’97
’95
(1) Before restructuring and asset impairment charge.
Free Cash Flow is defined as cash flows from operating
activities less capital expenditures. (2) Before extraordinary charge due to the early
extinguishment of debt, net of taxes.
TABLE OF CONTENTS
1997 New Stores Front Gatefold
Letter to Our Shareholders 2
A Banner Year: 1997 In Review 4-6
BarnesandNoble.com 8-9
A Dynamic Outlook: 1998 and Beyond 10
Selected Consolidated Financial Data 11-12
Management’s Discussion and Analysis 13-19
Consolidated Financial Statements 20-23
Notes to Consolidated Statements 24-33
Report of Independent Certified Public Accountants 34
Shareholder Information Back Gatefold
Barnes & Noble’s Top-Selling Titles 1997 Back Gatefold
Front Cover: Four of the unique bookends available through BarnesandNoble.com
and at Barnes & Noble stores. See inside catalogue pages to order.

3. 1997 NEW STORES
BETHESDA, MD
W E S T P O R T, C T
A s of January 1998, Barnes
& Noble operated 483
Barnes & Noble “super” stores
and 528 B. Dalton stores in 49
states and the District of Columbia.
In 1997, we opened 65 new
Barnes & Noble stores and four
new B.Dalton stores.
Barnes & Noble stores offer
UNION STATION, WASHINGTON D.C.
an authoritative selection of more
than 175,000 titles from more
than 10,000 publishers, with an
emphasis on small, independent
publishers and university presses.
Along with the comprehensive
in-store selection,
each store can fill
customers’ special
order requests from
more than one million
books in print. In
addition, the wide
array offered by
our Newsstands has
made Barnes&Noble
BURLINGTON, VT
CORPUS CHRISTI, TX
one of the country’s
largest retailers of
specialty magazines.
Our stores provide
customers with
places to relax and
read, comfortable
cafés, unique children’s sections,
music departments and calendars
of events featuring author appear-
ances and discussion groups.

4. BURLINGTON, VT
BATON ROUGE, LA
B arnes & Noble is committed
to talented new writers. In
1990 we established the Discover
Great New Writers program as
a forum for the works of new
and emerging authors. Since then,
we’ve had the opportunity to
highlight the works of literally
hundreds of new writers.
We also support our communities
through our efforts on behalf of
First Book, a national organization
dedicated to
providing books
to children with
little or no access
NEWPORT NEWS, VA
to them outside
of school.
Through our
bookstores, we
launch local
chapters of First
Book, host
book parties,
and annually
give over 50,000 books. We
are one of the leading sponsors
of Writers Harvest, an annual
series of readings held across the
country sponsored by Share Our
METAIRIE, LA
Strength, the nation’s foremost
anti-poverty organization.

5. BARNES & NOBLE 1997
FINANCIAL HIGHLIGHTS
Feb. 1, 1997(1)
FISCAL YEAR Jan. 31, 1998 Jan. 27, 1996
(Dollars in Millions, except Per Share data)
Revenues $2,796.9 $2,448.1 $1,976.9
Operating Profit(2) 147.3 119.7 88.6
Net Earnings(2)(3) 64.7 51.2 34.3
Diluted Earnings Per Common Share(4) 0.93 0.75 0.53
Return On Beginning Equity 14.2% 12.8% 9.6%
Represents the 53 weeks ended February 1, 1997. All other years presented represent 52 weeks.
(1)
Before restructuring and asset impairment charge for the fiscal year ended January 27, 1996.
(2)
(3) Before extraordinary charge due to the early extinguishment of debt, net of taxes, for the fiscal year ended
January 31, 1998.
(4) Restated to reflect the effect of a two-for-one stock split on September 22, 1997 and to reflect the
adoption of Statement of Financial Accounting Standards No. 128, “Earnings Per Share,” during 1997.
TOTAL REVENUES BARNES & NOBLE STORE REVENUES
Dollars in Billions Dollars in Billions
$2.8 $2.2
$2.4
$2.0 $1.9
$1.3
’95 ’95
’96 ’97 ’96 ’97
NET EARNINGS
OPERATING PROFIT
Dollars in Millions
Dollars in Millions
$64.7(2)
$147.3
$119.7 $51.2
$88.6(1)
$34.3(1)
’95 ’96 ’97
’95 ’96 ’97
(1) Before restructuring and asset impairment charge.
(1) Before restructuring and asset impairment charge.
(2) Before extraordinary charge due to the early
extinguishment of debt, net of taxes.
1

6. LETTER TO OUR
SHAREHOLDERS
I
first time since the “super”
t is fashionable these
store rollout began, we have
days to ask entrepre-
achieved positive cash
neurs the“vision” question.
flow as a result of strong
“What do you see on the dis-
comparable store sales
tant horizon,” they ask, and
and the excellent execu-
“What is your vision for the
tion of our business plan.
future of the company?”
We have also lengthened
The questions are intuited
our lead as the world’s
by the assumption that busi-
largest bookseller and
ness leaders are locked into
have emerged as a power-
the future by some sort of divine metaphysical
ful global brand. For good
connection: the size, color and calculus of their
measure, we have launched an incredibly effective
enterprises always measurable “within the mar-
Web site, while at the same time managing to
gins”. The present condition of their business is
achieve earnings growth of 26 percent.
viewed as a temporary aberration; articulation of a
All of this is a result of keeping an eye on the
business plan becomes the raison d’être of the com-
ball as well as foreseeing the future. There is, after
pany. Profit models replace profits, and planning
all, a distinction between vision and focus.
for the present is viewed as an ill-conceived notion.
Let me conclude by saying that the successful
I respectfully disagree. Let me give you an
entrepreneurs of the next millennium will be dedi-
example of what I mean.
cated to both. By definition they will be leading, not
Recently, a journalist asked me the vision
following, in every aspect of their enterprise. But at
question, “What does the future hold for Barnes &
day’s end, their success will be a function of their
Noble, now that it has done practically everything
focus as much as it is of their vision.
possible in bookselling? Will you be opening a
Barnes & Noble and BarnesandNoble.com
chain of music stores (—No—) or perhaps pioneering
are picking up momentum just as the world of com-
some innovation in the world of specialty retailing?”
merce promises to be as vast and as breathtaking as
My answer was simple: “We are barely half
the distant horizon. We couldn’t think of a better
way through our rollout,” I said, “so we’ve got at
place to be at this moment in time.
least 500 more stores to open. I mean, is a six-,
seven-, even eight-billion dollar business something
to shake a stick at these days?”
Unsatisfied, the journalist said, “Yes, I realize
that’s a lot of business, but what else will you do to
occupy your time?”
To which I replied, “Well, there is also the
LEONARD RIGGIO
matter of BarnesandNoble.com, a venture which is
as challenging and as promising as anything we’ve Chairman and Chief Executive Officer
ever attempted.”
Frowning, she said, “You must have some-
thing up your sleeve that you’re not willing to tell
me about.”
CLOCKWISE : LEONARD RIGGIO Chairman and Chief Executive
On the pages of this report, we will address Officer MARIE J. TOULANTIS Executive Vice President, Finance
some of the information which is “up our sleeve,” STEPHEN RIGGIO Vice Chairman MITCHELL S. KLIPPER President,
and some which is right out on the table. For the Barnes & Noble Development
2

8. A BANNER YEAR
1997 IN REVIEW
outstanding year for Barnes & Noble, the world’s largest bookseller, as we continued
1997 was another
to outdistance our competition, drawing 14% of the large, robust U.S. consumer book market. In May
of 1997, we launched BarnesandNoble.com, extending the global reach of the company and enhancing
Fortune 500
our already formidable brand. In April 1998, we were named to the
and were ranked eighth in the nation in highest total return to investors.
The results of our long-term Seventy-nine percent of our “super”
strategies were powerfully stores are now in the comp pool
evidenced by: and prospects for further growth
are strong. The early performance
• Record-breaking revenues
of BarnesandNoble.com has been
• Strong comparable store sales
impressive—1997 revenues for the
• Operating profits in each of
online business, in operation for
four quarters
just eight months of the fiscal year,
• Positive cash flow
nearly doubled in each of its first
• Highest-ever net earnings
three quarters for a total of $14.6
million. These early revenues fur-
The performance of Barnes &
ther evidence the power of the
Noble stock reflected the market’s
Barnes & Noble brand. During
recognition of both our strong
this launch phase, which was not
fundamentals and our future growth
supported by advertising expendi-
prospects. In fiscal 1997, Barnes
tures, customers visited our Web
& Noble’s market capitalization
site and purchased books largely
increased more than $1.1 billion,
based on word-of-mouth.
and our stock price grew 104%.
Operating Profits
Revenues and Comparable
Store Sales For the first time since the“super”
store rollout began in 1990 we
Total revenues rose to an all-time
posted operating profits in all of our
high of $2.797 billion, 14% over
fiscal quarters. Operating profit of
1996. Barnes & Noble “super”
$147.3 million reflected a 23%
store revenues rose 21% to $2.246
increase over 1996, and as a per-
billion and contributed 80% of
centage of revenues, grew to 5.3%
the total. Sales of bestsellers
from last year’s 4.9%.
represented less than 3% of total
The operating profit increase
revenues, emphasizing the
can be attributed to two major
diversity of our title offerings.
factors. First, gross margin grew
Barnes & Noble comparable
73 basis points primarily as a
“super”store sales were up 9.4% in
result of our continuing focus on
1997. This performance, among the
direct buying, which is facilitated
best in the entire retail industry, as
by the Barnes & Noble central
well as the best in book retailing,
distribution center. The distribu-
was due to an excellent merchandis-
tion center, which opened in
ing plan, high in-stock position and
September of 1996, has brought
enhanced store-level execution.
4

10. A BANNER YEAR CONTINUED
handling, freight, scheduling and we were able to refinance our
inventory costs down. We added $190 million, 117⁄8% subordinated
five times the capacity of our previ- debt with senior debt. In recognition
ous distribution network, thereby of Barnes& Noble’s strong financial
broadening title selection and provid- performance, this refinancing was
ing just-in-time inventory delivery to completed at significantly lower
our stores. A strategic benefit of the spreads and will substantially
distribution center is that its nearly decrease annual interest expense.
600,000 titles supply about 90% One of the key indicators of financial
of the books purchased through leverage—average debt to earnings
BarnesandNoble.com, before interest, taxes, depreciation
an important competitive and amortization (EBITDA)—
advantage in the e-commerce reduced from 1.98 times to 1.56
arena. Second, operating times, evidencing our strong cash
profit improvement is also flow and moderating leverage.
attributable to the contin- EBITDA increased 25%
ued leveraging of fixed for the fiscal year to $224 million,
costs such as selling, general and resulting in an EBITDA margin
administrative, rent and pre-opening of 8.0%, the highest we have ever
expenses. This leveraging was the recorded. 1997 represents the
result of the maturation of the fourth consecutive year of at least
TOP: DAVID K. CULLY President,
Barnes & Noble stores from 2.3 25% growth in EBITDA.
Barnes and Noble Distribution
years in 1996 to 2.8 years in 1997.
BOTTOM: THOMAS A. TOLWORTHY
President, Barnes & Noble
Net Earnings
Continuing maturation will generate
Booksellers
further margin expansion as the Consolidated net earnings,before the
stores grow to an average age of $11.5 million charge associated with
3.3 years by the end of 1998. the note redemption, increased 26%
We easily absorbed the $15.4 to $64.7 million. Adjusting for both
million operating loss associated with the net loss of $9.1 million for
the start-up of BarnesandNoble.com BarnesandNoble.com’s first year of
and have generated 23 consecutive operation and the $11.5 million
quarters of operating profit increases. note redemption charge, the consol-
The operating profit without idated net earnings would have
BarnesandNoble.com would been $73.8 million, the highest in
have been $162.7 million, resulting our history. After these
in an operating margin of 5.8%. adjustments, consol-
CONSOLIDATED EPS OF $0.93 IS COMPRISED OF
idated EPS increased THE FOLLOWING:
1997 1996
Positive Cash Flows 24% to $0.93, driving
Retail Business $ 1.06 $ 0.75
We generated $47.3 million of free the value of the
BarnesandNoble.com (0.13) –
cash flow. 1997 marked the first company’s shares to an $ 0.93 $0.75
year in which strong cash flows all-time high.
from operating activities exceeded
Shareholder Returns
capital expenditures since the
“super” store rollout began. This In September 1997, Barnes &
was due in part to the strong Noble stock split. A purchase of 100
emphasis on inventory management shares for $2,000.00 at the initial
facilitated by our new merchandise public offering in 1993 would have
replenishment systems. Because of grown to 200 shares worth more
record growth, expanded gross than $6,350.00 by the end of fiscal
margins, improved operating 1997. This reflected a compound
leverage and positive cash flows, annual return of over 30%.
6

12. MARCH MAY JUNE AUGUST
1997
We go live within AOL’s We launch on the Guests in the Live We partner with
Marketplace • First book World Wide Web • Partnerships Author Auditorium: Frank Lycos, the Internet
shipped: New Fix It with Microsoft,Hewlett-Packard McCourt, Emeril Lagasse, navigator
Yourself Manual & Firefly announced Susan Isaacs
E-COMMERCE: AN EXCITING GROWTH OPPORTUNITY
online
In 1997, another exciting chapter in our history began with the launch of our
bookstore. Premiering on America Online in March and on the World Wide Web in May,
BarnesandNoble.com quickly established itself as a leading player in the
fast-growingworld of e-commerce.
BARNESANDNOBLE.COM AND
AMERICA ONLINE: A STRATEGIC
B uilt by booksellers for book lovers,
PARTNERSHIP
BarnesandNoble.com makes book buying
Last March, we became the easy, fast and fun. Our database of every book
exclusive bookseller in America
in print is powered by a proprietary search
Online’s Marketplace. The AOL
engine that allows users to locate books by
site provides its members with
author, title or subject.
access to the proprietary database
of BarnesandNoble.com, and To help our customers further tailor their
enables us to directly reach a searches, we include book descriptions, reviews
well-established online comm-
and author interviews on hundred of thousands
unity. In December of 1997,
of titles, along with recommendations by our
BarnesandNoble.com and
editors and our online community of readers.
America Online significantly
expanded their relationship with Lively bulletin boards and reviews enable
an exclusive four-year agreement readers to share their opinions about books.
that gives BarnesandNoble.com
At BarnesandNoble.com, customers can
a commanding presence through-
shop at the Gift Center, check out Bargain
out AOL, and access to its more
Books, or keep current with Books in the News.
than 12 million members.
Through our unique links, AOL’s They can stop in at the Magazine Stand, a
members can now easily find titles
related to specific Web content,
particularly in high-traffic areas
such as Personal Finance, Lifestyle
and Entertainment. AOL Keyword:
BarnesandNoble.
8

13. 1998
SEPTEMBER OCTOBER DECEMBER JANUARY
The Affiliate Network We partner with We enter into a four-year We launch Book Benefits
launches with over 40 The New York Times to launch alliance with America Online Network for Non-Profits with
strategic partners Microsite • Revenues for the quarter • 600,000th book shipped: Making support from American Express
ended November 1st increased Music For The Joy Of It • E-commerce agreement with
86% over prior quarter •1,000th Affiliate: Business Week Disney Online announced
STRATEGIC MARKETING
ALLIANCES
Since the launch of
our online bookstore,
we have aggressively
pursued and won
marketing and distri-
bution deals with the
Web’s leading content,
search and commerce
sites. These deals
serve to extend the
reach of BarnesandNoble.com by
creating links to high-traffic sites,
such as Lycos, CNN Interactive,
Discovery Channel Online, ZD
Net, Time Inc. New Media, and
concession featuring hundreds of the most USA Today.
BarnesandNoble.com’s reach
popular publications. The Magazine Stand gives
was even further extended by the
our customers worldwide the ability to subscribe
thousands of additional Web sites
to magazines at the lowest prices available on that have joined our innovative
the Web. affiliate network. All of the affili-
From the latest bestsellers and new releases ates earn commissions based upon
sales generated from the traffic
to diverse titles from small presses and university
they direct to our site.
publishers, we have more books available for
We also entered into an exten-
same-day shipping from our warehouse than sive partnership with Disney
any online bookseller— currently almost in which BarnesandNoble.com
600,000 titles and growing. is the exclusive bookseller for
their site; in addition, we operate
In 1997, over 250,000 customers in 149
a Disney bookstore on our
countries purchased their books from our
own site.
online store. The availability of every book in
print combined with deep discounts and fast
delivery has made BarnesandNoble.com the
online global bookseller of choice.
9

14. A DYNAMIC OUTLOOK
1998 AND BEYOND
milestones
For 1998 and beyond, Barnes & Noble looks forward to capitalizing on the
achieved in 1997. We plan to open approximately sixty new Barnes & Noble stores, continuing
sustainedrollouts in retailing history.
one of the most
S ometime in the fall, we will In 1998 we anticipate contin-
reach yet another milestone ued operating profit improvement
due to strong comparable store
with the opening of the 500th
sales and more expense leverage.
Barnes & Noble store, an event
This will result in accelerating
which will be celebrated company-
cash flows and will allow us
wide. Our first 500 stores repre-
to aggressively increase advertising
sent the establishment of an
expenditures in order to capital-
enduring franchise—one we
ize on BarnesandNoble.com’s
expect will result in increased
sales momentum.
market share in the years ahead.
In 1997 we reinforced our
As Barnes & Noble enters
excellent existing leadership with
1998, we remain the only book
key appointments. Steve Riggio
retailer operating through all four
became Vice Chairman of the
channels of distribution:
company. J. Alan Kahn, formerly
retail stores, the Internet,
President of our affiliate, Barnes
1-800-THE BOOK and
& Noble College Bookstores,
mail order. Barnes &
became Chief Operating Officer;
Noble’s singular ability to
Marie Toulantis joined as Executive
reach consumers through
VicePresident of Finance.Jeff Killeen
all available channels will
was appointed Chief Operating
enable us to garner
Officer of BarnesandNoble.com.
impressive market share growth,
We also welcomed Frank
particularly in light of favorable
O’Neill as President of B. Dalton
and improving demographics.
Bookseller to lead our ongoing
Further, new media like the strategic campaign to focus that
CLOCKWISE: MARY ELLEN KEATING
Internet are stimulating interest
Senior Vice President, Corporate group of stores into a more
Communications& Public Affairs in books that will result in an profitable core. Mary Ellen
FRANK J. O’NEILL President,
expansion of the market. Keating joined as Senior Vice
B. Dalton Bookseller J. ALAN
Barnes & Noble will continue
KAHN Chief Operating Officer President, Barnes & Noble
to emphasize the merchandising Corporate Communications and
and marketing of books published Public Affairs.
under the Barnes & Noble Books We enter 1998 with an
imprint. The publishing imprint, expanded management team and
in addition to differentiating a sharp, strategic focus on those
us from the competition, repre- ventures that will best serve our
sents value to our customers, premiere position as the world’s
while at the same time creating largest bookseller. We are pleased
incremental sales and higher that our efforts have returned sig-
margins. BarnesandNoble.com nificant value for our investors in
is an important channel for 1997, and look forward to continu-
ing to maximize shareholder value.
its distribution.
10

15. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of Barnes & Noble, Inc. and its wholly owned subsidiaries (collectively, the Company) set forth
on the following pages should be read in conjunction with the consolidated financial statements and notes included elsewhere in this report.
The Company’s fiscal year is comprised of 52 or 53 weeks, ending on the Saturday closest to the last day of January. The Statement of
Operations Data for the 52 weeks ended January 31, 1998 (fiscal 1997), the 53 weeks ended February 1, 1997 (fiscal 1996) and the 52 weeks
ended January 27, 1996 (fiscal 1995) and the Balance Sheet Data as of January 31, 1998 and February 1, 1997 are derived from, and are
qualified by reference to, audited consolidated financial statements which are included elsewhere in this report. The Statement of Operations
Data for the 52 weeks ended January 28, 1995 (fiscal 1994) and January 29, 1994 (fiscal 1993) and the Balance Sheet Data as of January
27, 1996, January 28, 1995 and January 29, 1994 are derived from audited consolidated financial statements not included in this report.
Certain prior-period amounts have been reclassified for comparative purposes.
FISCAL YEAR 1997 1996 1995 1994 1993
(Thousands of dollars, except per share data)
STATEMENT OF OPERATIONS DATA:
Revenues
Barnes & Noble stores(1) $ 2,245,531 1,861,177 1,349,830 952,697 614,646
B. Dalton stores(2) 509,389 564,926 603,204 646,876 688,220
BarnesandNoble.com 14,601 — — — —
Other 27,331 22,021 23,866 23,158 34,520
Total revenues 2,796,852 2,448,124 1,976,900 1,622,731 1,337,386
Cost of sales and occupancy 2,019,291 1,785,392 1,444,555 1,192,123 989,526
Gross profit 777,561 662,732 532,345 430,608 347,860
Selling and administrative expenses 540,423 465,687 383,692 316,457 267,699
Depreciation and amortization 76,951 59,806 47,881 36,617 29,077
Pre-opening expenses 12,918 17,571 12,160 9,021 8,940
Restructuring charge(3) — — 123,768 — —
Operating profit (loss) 147,269 119,668 (35,156) 68,513 42,144
Interest expense, net and amortization of
deferred financing fees(4) 37,666 38,286 28,142 22,955 25,807
Earnings (loss) before provision (benefit) for
income taxes and extraordinary charge 109,603 81,382 (63,298) 45,558 16,337
Provision (benefit) for income taxes 44,935 30,157 (10,322) 20,085 8,584
Earnings (loss) before extraordinary charge 64,668 51,225 (52,976) 25,473 7,753
Extraordinary charge(5) 11,499 — — — —
Net earnings (loss)(6) $ 53,169 51,225 (52,976) 25,473 7,753
Earnings (loss) per common share(7)
Basic
Earnings (loss) before extraordinary charge $ 0.96 0.77 (0.85) 0.42 0.15
Extraordinary charge $ 0.17 — — — —
Net earnings (loss) $ 0.79 0.77 (0.85) 0.42 0.15
Diluted
Earnings (loss) before extraordinary charge $ 0.93 0.75 (0.85) 0.41 0.15
Extraordinary charge $ 0.17 — — — —
Net earnings (loss) $ 0.76 0.75 (0.85) 0.41 0.15
Weighted average common shares outstanding (7)
Basic 67,237,000 66,103,000 62,434,000 59,970,000 52,039,000
Diluted 69,836,000 67,886,000 62,434,000 61,560,000 52,255,000
11

16. Selected Consolidated Financial Data continued
FISCAL YEAR 1997 1996 1995 1994 1993
(Thousands of dollars, except per share data)
STORE OPERATING DATA:
Stores open at end of period
Barnes & Noble stores(1) 483 431 358 268 203
B. Dalton stores(2) 528 577 639 698 734
Total 1,011 1,008 997 966 937
Comparable store sales increase (decrease)(8)
Barnes & Noble stores(1) 9.4% 7.3% 6.9% 12.6% 8.6%
B. Dalton stores(2) (1.1) (1.0) (4.3) (2.3) (0.3)
Capital Expenditures $ 121,903 171,885 154,913 88,763 81,116
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital $ 264,719 212,692 226,500 155,976 182,403
Total assets $ 1,591,171 1,446,647 1,315,342 1,026,418 895,863
Long-term debt, less current portions $ 284,800 290,000 262,400 190,000 190,000
Shareholders’ equity $ 531,755 455,989 400,235 358,173 328,841
(1)
Also includes 20 Bookstop and 25 Bookstar stores.
(2)
Also includes 18 Doubleday Book Shops, nine Scribner’s Bookstores and seven smaller format bookstores operated under the Barnes & Noble trade name repre-
senting the Company’s original retail strategy.
(3)
Restructuring charge includes restructuring and asset impairment losses recognized upon adoption of Statement of Financial Accounting Standards No. 121,
“Impairment of Long-Lived Assets and Assets to be Disposed Of.”
(4)
Interest expense for fiscal 1997, 1996, 1995, 1994, and 1993 is net of interest income of $446, $2,288, $2,138, $3,008 and $1,838, respectively.
(5)
Reflects a net extraordinary charge during fiscal 1997 due to the early extinguishment of debt, consisting of: (i) a pre-tax charge of $11,281 associated with the
redemption premium on the Company’s senior subordinated notes; (ii) the associated write-off of $8,209 of unamortized deferred finance costs; and (iii) the related
tax benefits of $7,991 on the extraordinary charge.
(6)
Net earnings (loss) does not give effect to preferred stock dividends. Holders of the Company’s Series C Preferred Stock were entitled to dividends of $4,466
during fiscal 1993. Such accumulated dividends were paid from the proceeds of the Company’s initial public offering completed on October 4, 1993 (IPO).
Accumulated dividends on all other series of preferred stock outstanding were converted into common stock or waived during fiscal 1993.
(7)
All share and per-share amounts have been restated to give effect to a two-for-one stock split completed by the Company during fiscal 1997, and to reflect the
adoption, in fiscal 1997, of Statement of Financial Accounting Standards No. 128, “Earnings per Share” for all periods presented. Fiscal 1993 earnings per share
were computed on a pro forma basis and give effect to certain employee stock options using the treasury stock method, the number of shares issued upon the
conversions of preferred stock and the exercise of warrants in connection with the IPO and the number of shares issued equal in value to the redemption price of
the Series C Preferred Stock, including accumulated and unpaid dividends.
(8)
Comparable store sales increase (decrease) is calculated on a 52-week basis, and includes sales of stores that have been open for 12 months for B. Dalton stores and
15 months for Barnes & Noble stores (due to the high sales volume associated with grand openings). Comparable store sales for fiscal years 1997 and 1996 include
relocated Barnes & Noble stores and exclude B. Dalton stores which the company has closed or has a formal plan to close.
12

17. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company’s fiscal year is comprised of 52 or 53 weeks, Barnes & Noble stores range in size from 10,000 to 60,000
ending on the Saturday closest to the last day of January. As used square feet depending upon market size, and each store features
in this section, “fiscal 1997” represents the 52 weeks ended an authoritative selection of books, ranging from 60,000 to
January 31, 1998, “fiscal 1996” represents the 53 weeks ended 175,000 titles. The comprehensive title selection is diverse and
February 1, 1997 and “fiscal 1995” represents the 52 weeks ended reflects local interests. To further this diversity, Barnes & Noble
January 27, 1996. emphasizes books published by small and independent publishers
and university presses. Bestsellers represent only 3% of Barnes &
Noble store sales. In addition to the extensive on-site selection,
GENERAL each store can fill customers’ special order requests from the more
than one million books in print.
Barnes & Noble stores opened during fiscal 1997 added
Barnes & Noble, Inc. (Barnes & Noble or the Company), the
1.6 million square feet to the Barnes & Noble base, bringing the
world’s largest bookseller*, as of January 31, 1998 operates 483
total square footage to 10.8 million square feet, a 16% increase
“super” stores, 65 of which were opened in fiscal 1997, under
over the prior year. Barnes & Noble stores generated more than
the Barnes & Noble Booksellers, Bookstop and Bookstar
80% of the Company’s total revenues in fiscal 1997. The Company
trade names, and 528 mall bookstores under the B. Dalton
plans to open approximately 60 Barnes & Noble stores in 1998
Booksellers, Doubleday Book Shops and Scribner’s Bookstore
which are expected to average 26,000 square feet in size.
trade names. Barnes & Noble publishes books under its
At the end of fiscal 1997, the Company operated 528
own imprint for exclusive sale through its retail stores and
B. Dalton stores in 45 states and the District of Columbia.
mail-order catalogs. The Company is also the exclusive bookseller
B. Dalton stores employ merchandising strategies that target the
in America Online’s Marketplace (keyword: BarnesandNoble)
“middle-American” consumer book market, offering a wide range
and maintains its own Web site (BarnesandNoble.com), operating
of bestsellers and general-interest titles. Doubleday and Scribner’s
the “world’s largest bookseller online.” The Company employed
bookstores utilize a more upscale format aimed at the “carriage
approximately 27,200 full- and part-time booksellers and created
trade” in higher-end shopping malls and place a greater emphasis
nearly 3,200 new jobs nationwide during fiscal 1997 primarily due
on hardcover and gift books. Most B. Dalton stores range in size
to its Barnes & Noble store expansion.
from 2,800 to 6,000 square feet, and while they are appropriate to
Barnes & Noble is the largest operator of book “super” stores
the size of adjacent mall tenants, the opening of superstores in
in the United States* with 483 Barnes & Noble stores located in 48
nearby locations continues to have a significant impact on
states and the District of Columbia as of January 31, 1998. With
B. Dalton stores.
more than 30 years of bookselling experience, management has a
The Company is continuing to execute its strategy to maxi-
strong sense of customers’ changing needs and the Company leads
mize returns from its B. Dalton division in response to declining
book retailing with a “community store” concept. Barnes &
sales attributable primarily to superstore competition and, to a
Noble’s typical store offers a comprehensive title base, a café, a
lesser extent, weaker overall consumer traffic in shopping malls.
children’s section, a music department and a calendar of ongoing
Part of the Company’s strategy has been to close underperforming
events, including author appearances and children’s activities, that
stores, which has resulted in the closing of more than 50 B. Dalton
make each Barnes & Noble store an active part of its community.
stores per year since 1989.
Management estimates that as much as 80% of the sales generated
The Company has also been expanding the size of some of its
by a new Barnes & Noble store is incremental to the community in
new B. Dalton stores and is seeking better locations within malls.
which the store is located, representing a combination of
A new B. Dalton prototype was developed for this purpose in 1993
previously unfulfilled and newly created demand.
and, since that time, more than 100 new or converted stores have
been opened and are performing, on average, better than the
remaining store base.
* based upon sales reported in trade publications and public filings
13

18. Management’s Discussion and Analysis of Financial Condition and Results of Operations continued
Complementing its leadership position as the world’s largest RESULTS OF OPERATIONS
bookseller, Barnes & Noble is the world’s largest supplier of books
The Company’s revenues, operating profit (loss), comparable
through catalogs*. The Company mails over 15 million catalogs
store sales, store openings, store closings and number of stores
each year and maintains a list of over one million customers world-
open at year end are set forth below:
wide. Barnes & Noble’s extensive catalog mailings have created
substantial global name recognition which has benefited both the
FISCAL YEAR 1997 1996 1995
retail stores and the online business. (Thousands of dollars)
During 1997, the Company, through its wholly owned sub-
REVENUES
sidiary BarnesandNoble.com Inc., became the exclusive book-
Retail Business $ 2,782,251 2,448,124 1,976,900
seller in America Online’s Marketplace, linking the world’s largest
BarnesandNoble.com 14,601 — —
bookseller with the world’s most popular Internet online service.
Total $ 2,796,852 2,448,124 1,976,900
The exclusive four-year agreement gives BarnesandNoble.com
OPERATING PROFIT (LOSS)
an extensive presence throughout America Online. The Company
Retail Business $ 162,664 119,668 (35,156)
further extended its brand awareness by launching its own Web
BarnesandNoble.com (15,395) — —
site (BarnesandNoble.com) through which it has entered into
Total $ 147,269 119,668 (35,156)
thousands of strategic online alliances and affiliations, including
COMPARABLE STORE SALES
Lycos, Web Crawler, ZDNet, The New York Times and Disney. The
INCREASE (DECREASE)(1)
Company believes that it brings significant competitive advan- Barnes & Noble stores(2) 9.4% 7.3% 6.9%
tages to the online bookselling market, including its distribution B. Dalton stores(3) (1.1) (1.0) (4.3)
expertise, proprietary title database, large customer base and
STORES OPENED
brand recognition.
Barnes & Noble stores(2) 65 91 97
The Company further differentiates its product offerings B. Dalton stores(3) 4 10 10
from those of its competitors by publishing books under its own Total 69 101 107
Barnes & Noble Books imprint for exclusive sale in its retail stores,
STORES CLOSED
direct-mail catalogs and through BarnesandNoble.com. With Barnes & Noble stores(2) 13 18 7
publishing and distribution rights to over 1,500 titles, Barnes & B. Dalton stores(3) 53 72 69
Noble Books offers customers high-quality books at excellent Total 66 90 76
values and generates attractive gross margins. NUMBER OF STORES OPEN
The Company also maintains an equity investment in AT YEAR END
Barnes & Noble stores(2) 483 431 358
Chapters Inc., an Ontario company which is publicly traded on
B. Dalton stores(3) 528 577 639
the Toronto Stock Exchange. Chapters is the largest book retailer
Total 1,011 1,008 997
in Canada and the third largest in North America*, operating 347
SQUARE FEET OF SELLING SPACE
bookstores, including 29 superstores, as of the end of fiscal 1997.
AT YEAR END (IN MILLIONS)
Barnes & Noble stores(2) 10.8 9.3 7.0
B. Dalton stores(3) 2.0 2.2 2.4
Total 12.8 11.5 9.4
(1)
Comparable store sales for B. Dalton stores are determined using stores
open at least 12 months. Comparable store sales for Barnes & Noble stores
are determined using stores open at least 15 months, due to the high sales
volume associated with grand openings. Comparable store sales increase
(decrease) is computed on a 52-week basis for fiscal 1996.
(2)
Also includes 20 Bookstop and 25 Bookstar stores.
(3)
Also includes 18 Doubleday Book Shops, nine Scribner’s Bookstores and
seven smaller format bookstores operated under the Barnes & Noble trade
* based upon sales reported in trade publications and public filings name representing the Company’s original retail strategy.
14

19. Management’s Discussion and Analysis of Financial Condition and Results of Operations continued
The following table sets forth, for the periods indicated, the 52 WEEKS ENDED JANUARY 31, 1998 COMPARED WITH 53 WEEKS
percentage relationship that certain items bear to total revenues of ENDED FEBRUARY 1, 1997
the Company:
Revenues
FISCAL YEAR 1997 1996 1995 The Company’s revenues increased 14.2% during fiscal 1997
to $2.797 billion from $2.448 billion during fiscal 1996. Fiscal 1996
Revenues 100.0% 100.0% 100.0%
includes 53 weeks; excluding the impact of the 53rd
Cost of sales
week, revenues increased 16.0%. Fiscal 1997 revenues from
and occupancy 72.2 72.9 73.1
Barnes & Noble stores, which contributed 80.3% of total
Gross margin 27.8 27.1 26.9
revenues, increased 20.7% to $2.246 billion from $1.861 billion
Selling and administrative
in fiscal 1996.
expenses 19.3 19.0 19.4
The increase in revenues was primarily due to the 9.4%
Depreciation and
increase in Barnes & Noble comparable store sales and the open-
amortization 2.8 2.5 2.4
ing of an additional 65 Barnes & Noble stores during 1997. This
Pre-opening expenses 0.4 0.7 0.6
increase was slightly offset by declining revenues of B. Dalton
Restructuring charge — — 6.3
stores which closed 53 stores and posted a comparable store sales
Operating margin(1) 5.3 4.9 (1.8)
decline of 1.1%. BarnesandNoble.com, the Company’s new online
Interest expense, net
subsidiary, also contributed to the increase in revenue, posting
and amortization of
$14.6 million of revenues during its first partial year
deferred financing fees 1.4 1.6 1.4
of operations.
Earnings (loss) before
provision (benefit)
Cost of Sales and Occupancy
for income taxes and
The Company’s cost of sales and occupancy includes costs
extraordinary charge(1) 3.9 3.3 (3.2)
such as rental expense, common area maintenance, merchant
Provision (benefit) for
association dues, lease-required advertising and adjustments
income taxes(1) 1.6 1.2 (0.5)
for LIFO.
Earnings (loss) before
Cost of sales and occupancy increased 13.1% during fiscal
extraordinary charge(1) 2.3 2.1 (2.7)
1997 to $2.019 billion from $1.785 billion in fiscal 1996 resulting in
Extraordinary charge 0.4 — —
an increase in the Company’s gross margin rate to 27.8% in fiscal
Net earnings (loss) 1.9% 2.1% (2.7)%
1997 from 27.1% in fiscal 1996. The gross margin expansion
(1)
If operating margin, earnings (loss) before provision (benefit) for income reflects more direct buying, reduced costs of shipping and
taxes and extraordinary charge, provision (benefit) for income taxes and
handling, and improvements in merchandise mix.
earnings (loss) before extraordinary charge were presented before the
effects of the restructuring charge of $123,768 during fiscal 1995, the per-
centage relationship that these items would bear to total revenues of the
Selling and Administrative Expenses
Company would be 4.5%, 3.1%, 1.4% and 1.7%, respectively.
Selling and administrative expenses increased $74.7 million,
or 16.0% to $540.4 million in fiscal 1997 from $465.7 million in
fiscal 1996. Selling and administrative expenses increased
to 19.3% of revenues during fiscal 1997 from 19.0% during fiscal
1996 primarily as a result of the start -up expenses from
BarnesandNoble.com. Excluding BarnesandNoble.com, selling
and administrative expenses would have declined to 18.9% of
revenues, reflecting operating leverage improvement.
15

20. Management’s Discussion and Analysis of Financial Condition and Results of Operations continued
Depreciation and Amortization Earnings
Depreciation and amortization increased $17.2 million, Fiscal 1997 earnings before extraordinary charge increased
or 28.8%, to $77.0 million in fiscal 1997 from $59.8 million in $13.4 million, or 26.2%, to $64.7 million (or $0.93 per diluted
fiscal 1996. The increase was primarily the result of the new share) from $51.2 million (or $0.75 per diluted share) during
Barnes & Noble stores opened during fiscal 1997 and fiscal 1996. fiscal 1996. The extraordinary charge in fiscal 1997 of $11.5 mil-
lion equated to $0.17 per diluted share resulting in net earnings
Pre-Opening Expenses during fiscal 1997 of $53.2 million (or $0.76 per diluted share).
Pre-opening expenses declined in fiscal 1997 to $12.9 million All share and per-share amounts contained in this annual
from $17.6 million in fiscal 1996 reflecting fewer new stores report have been restated to reflect a two-for-one split of the
compared with prior years. Company’s common stock in September of 1997, and the adoption
of Statement of Financial Accounting Standards No. 128,
Operating Profit “Earnings per Share” (SFAS 128). Implementation of SFAS 128
Operating profit increased to $147.3 million in fiscal 1997 did not have a material effect on the Company’s diluted earnings
from $119.7 million in fiscal 1996. Despite the $15.4 million oper- per share. SFAS 128 requires the disclosure of basic earnings per
ating loss from BarnesandNoble.com, operating margin improved share in addition to diluted earnings per share.
to 5.3% of revenues during fiscal 1997 from 4.9% of revenues
during fiscal 1996. Excluding BarnesandNoble.com, operating
53 WEEKS ENDED FEBRUARY 1, 1997, COMPARED WITH 52 WEEKS
margin for the retail business improved to 5.8% of revenues.
ENDED JANUARY 27, 1996
Interest Expense, Net and Amortization of Deferred
Revenues
Financing Fees
The Company’s revenues increased 23.8% during fiscal 1996
Interest expense, net of interest income, and amortization of
to $2.448 billion from $1.977 billion during fiscal 1995. Fiscal
deferred financing fees decreased $0.6 million in fiscal 1997 to
1996 includes 53 weeks; excluding the impact of the 53rd week,
$37.7 million from $38.3 million in fiscal 1996. The decline was
revenues increased 21.5%. During fiscal 1996, revenues from
primarily due to lower borrowings under the Company’s senior
Barnes & Noble stores rose 37.9% to $1.861 billion from $1.350
credit facilities.
billion during fiscal 1995 and contributed 76.0% of total revenues,
Provision for Income Taxes up from 68.3% during fiscal 1995. B. Dalton stores generated
revenues of $564.9 million (or 23.1% of total revenues) during
Barnes & Noble’s effective tax rate was 41.0% during fiscal
fiscal 1996, down from $603.2 million (or 30.5% of total revenues)
1997 compared with 37.1% during fiscal 1996. The fiscal 1996
during fiscal 1995.
provision reflected a non-recurring $3.0 million rehabilitation
The increase in revenues was primarily attributable to an
tax credit.
increase in sales from Barnes & Noble stores. The Company
Extraordinary Charge opened 91 Barnes & Noble stores and closed 18 during fiscal 1996
(12 of which were relocated), increasing square footage by 33% in
As a result of obtaining a new senior credit facility during
fiscal 1996. Comparable store sales for Barnes & Noble stores,
fiscal 1997, the Company called its outstanding $190 million, 117⁄8 %
which excludes the impact of the 53rd week of sales, increased
senior subordinated notes on January 15, 1998, at a call premium
7.3% during fiscal 1996, in comparison to 6.9% during fiscal 1995.
of 5.9375%. The extraordinary charge reflects (on an after-tax
During fiscal 1996, revenues of B. Dalton stores declined, primar-
basis) such call premium along with the write-off of related
ily due to the 72 store closings and a comparable store sales
deferred financing fees.
decrease of 1.0%.
16

21. Management’s Discussion and Analysis of Financial Condition and Results of Operations continued
Cost of Sales and Occupancy Interest Expense, Net and Amortization of Deferred
Financing Fees
The Company’s cost of sales and occupancy includes costs
such as rental expense, common area maintenance, merchant Interest expense, net of interest income, and amortization of
association dues, lease-required advertising and adjustments deferred financing fees increased $10.2 million, or 36.0%, to $38.3
for LIFO. million during fiscal 1996 from $28.1 million during fiscal 1995.
Cost of sales and occupancy increased 23.6% during fiscal The increase resulted from a rise in borrowings under the
1996 to $1.785 billion from $1.445 billion during fiscal 1995, but Company’s credit facility to finance working capital and capital
decreased as a percentage of revenues to 72.9% during fiscal expenditures. The impact of the increased borrowings was par-
1996 from 73.1% during fiscal 1995 due to improvements in tially offset by a reduction in the Company’s weighted-average
merchandise mix, as well as increases in merchandise margins due interest rate on its short-term borrowings.
to more direct purchasing. Excluding the impact of LIFO, cost of
Provision (Benefit) for Income Taxes
sales and occupancy as a percentage of revenues declined to
72.9% in fiscal 1996 from 73.4% in fiscal 1995. The Company’s income tax provision during fiscal 1996 was
$30.2 million compared with $26.1 million in fiscal 1995 (before
Selling and Administrative Expenses the effects of the $123.8 million restructuring charge). Barnes &
Selling and administrative expenses increased $82.0 million, Noble’s effective tax rate was 37.1% during fiscal 1996 and 43.2%
or 21.4% to $465.7 million during fiscal 1996 from $383.7 million during fiscal 1995 (before the effects of the restructuring charge).
during fiscal 1995. The Company’s operating leverage continued Such rates exceeded the federal statutory rate primarily due to the
to improve as selling and administrative expenses decreased as a combined effects of goodwill amortization and state and local
percentage of revenues to 19.0% during fiscal 1996 from 19.4% taxes. The fiscal 1996 provision also reflects a non-recurring
during fiscal 1995. $3.0 million rehabilitation tax credit.
Depreciation and Amortization Net Earnings (Loss)
Depreciation and amortization increased $11.9 million, or As a result of the factors discussed above, the Company’s net
24.9%, to $59.8 million during fiscal 1996 from $47.9 million earnings in fiscal 1996 increased to $51.2 million from $34.3
during fiscal 1995. The increase was primarily a result of the million in fiscal 1995 (before the effects of the $123.8 million
addition of 91 Barnes & Noble stores during fiscal 1996. restructuring charge). Fiscal 1996 earnings increased due to the
continuing improvement in Barnes & Noble operating profits
Pre-Opening Expenses combined with accelerating revenues over which to spread
Pre-opening expenses increased $5.4 million, or 44.5%, to overhead costs.
$17.6 million during fiscal 1996 from $12.2 million during fiscal Net earnings per diluted share were $0.75 during fiscal 1996
1995. As the Company amortizes pre-opening expenses over the compared with $0.53 during fiscal 1995 (before the effects of the
respective store’s first 12 months of operation, the increase reflects restructuring charge). Net earnings increased 49.3% while earn-
the opening of 109 new Barnes & Noble stores during the second ings per diluted share increased 41.5% due to an increase in the
half of fiscal 1995 and the first half of fiscal 1996 compared with 68 diluted weighted-average shares outstanding to 67.9 million
stores in the corresponding period of the previous year. shares during fiscal 1996 from 64.3 million shares during fiscal
1995, reflecting the full-year impact of 5.0 million common shares
Operating Profit (Loss) issued in October of 1995.
Operating profit, before the effects of the $123.8 million
restructuring charge in fiscal 1995, increased $31.1 million, or
35.0% to $119.7 million during fiscal 1996 from $88.6 million
during fiscal 1995. As a percentage of revenues, operating profit
increased to 4.9% during fiscal 1996 from 4.5% during fiscal
1995 (before the effects of the restructuring charge), reflecting
improved operating leverage.
17